ALGIERS, Jan 17 (Reuters) - Twenty-five foreign hostagesescaped and six were killed on Thursday when Algerian forceslaunched an operation to free them at a remote desert gas plant,Algerian sources said, as one of the biggest internationalhostage crises in decades unfolded.

The standoff began when gunmen calling themselves theBattalion of Blood stormed the gas facility on Wednesdaymorning. They said they were holding 41 foreigners and demandeda halt to a French military operation against fellow alQaeda-linked Islamist militants in neighbouring Mali.

The raid increased fears that jihadist militants couldlaunch further attacks in Algeria, a vast desert country withlarge oil and gas reserves that is only just recovering from aprotracted conflict with Islamist rebels during the 1990s whichcost an estimated 200,000 lives.

Fast-moving details of the military operation to free thehostages from the gas plant were difficult to confirm. Algeria'sofficial APS news agency said about half the foreign hostageshad been freed.

A local source told Reuters six foreign hostages were killedalong with eight captors when the Algerian military fired on avehicle being used by the gunmen.

Mauritania's ANI news agency, which has been in constantcontact with the kidnappers, said seven hostages were stillbeing held: two Americans, three Belgians, one Japanese and oneBritish citizen.

It quoted one of the kidnappers as saying that Algerianground forces were trying to fight their way into the complex.

ANI and Qatar-based Al Jazeera reported that 34 of thecaptives and 15 of their captors had been killed when governmentforces fired from helicopters at a vehicle. Those death tolls,far higher than confirmed by the local source, would contradictthe reports that large numbers of foreigners escaped alive.

Britain and Norway, whose oil firms BP and Statoil run theplant jointly with the Algerian state oil company, said they hadbeen informed by the Algerian authorities that a militaryoperation was under way but did not provide details.

As many as 600 Algerian workers at the site managed to flee,the official Algerian news agency said.

RAISING THE STAKES

The incident dramatically raises the stakes in the Frenchmilitary campaign in neighbouring Mali, where hundreds of Frenchparatroopers and marines are launching a ground offensiveagainst rebels after air strikes began last week.

Algerian Interior Minister Daho Ould Kablia said thekidnappers were led by Mokhtar Belmokhtar, a veteran Islamistguerrilla who fought Soviet forces in Afghanistan in the 1980sand had set up his own group in the Sahara after falling outwith other local al Qaeda leaders.

A holy warrior-cum-smuggler dubbed "The Uncatchable" byFrench intelligence and "Mister Marlboro" by some locals for hisillicit cigarette-running business, Belmokhtar's links to thosewho seized towns across northern Mali last year are unclear.

The hostage takers earlier allowed some prisoners to speakto the media, apparently to put pressure on Algerian forces notto storm the compound. An unidentified hostage who spoke toFrance 24 television said prisoners were forced to wearexplosive belts and captors had threatened to blow up the plant.

A local source told Reuters the hostage takers had blown upa petrol filling station at the plant.

Two hostages, identified as British and Irish, spoke to AlJazeera television and called on the Algerian army to withdrawfrom the area to avoid casualties.

"We are receiving care and good treatment from thekidnappers. The (Algerian) army did not withdraw and they arefiring at the camp," the British man said. "There are around 150Algerian hostages. We say to everybody that negotiations is asign of strength and will spare many any loss of life."

Ireland said later that the Irish hostage was among thosefreed.

NUMBERS UNCONFIRMED

The precise number and nationalities of foreign hostagescould not be confirmed, with some countries reluctant to releaseinformation that could be useful to the captors.

Britain said one of its citizens was killed in the initialstorming on Wednesday and "a number" of others were held.

The militants said seven Americans were among theirhostages, a figure U.S. officials said they could not confirm.

Norwegian oil company Statoil said nine of itsNorwegian staff and three Algerian employees were captive.Britain's BP, which operates the plant with Statoil andAlgerian state oil company Sonatrach, said some of its staffwere held but would not say how many or their nationalities.